Chapter 7 Vs. Chapter 13: Which Is Right For You?

As you explore your debt relief options, you will naturally want clear answers to questions such as:

A personalized conversation about your financial situation with a knowledgeable lawyer can put your mind at ease. Understanding definitions is an important first step in the process of discovering the way to a fresh financial start.

The Power Of The Automatic Stay

If you decide to file Chapter 7 or Chapter 13 bankruptcy, your creditors' collection efforts should stop right away because of the power of the automatic stay. Freeing yourself from creditors' harassment can bring great relief as you move toward completion of your bankruptcy case.

Pros And Cons Of Chapter 7 — And How To Qualify For It

Chapter 7 bankruptcy is sometimes referred to as "debt discharge bankruptcy." Many successful Chapter 7 filers receive a debt discharge that wipes out most or all consumer debt, including:

  • Medical bills
  • Credit card balances
  • Installment loans

To qualify for a Chapter 7 bankruptcy, you must pass a government-mandated means test. This test will determine whether your income and assets are so low that you cannot repay your debts.

If the answer is "yes," you qualify, you may be on your way to debt relief and a fresh start within just a few months. You will need to pay the full cost of the bankruptcy upfront before filing. This can be a deterrent for many people.

Pros And Cons Of Chapter 13

Chapter 13 bankruptcy is often referred to as "debt reorganization." If you do not qualify for Chapter 7 bankruptcy because of higher income and assets or if there is some reason it is not in your best interest to file Chapter 7, you may opt for a three-to-five-year debt repayment plan through a Chapter 13 bankruptcy.

How Chapter 13 Works

Debt consolidation or reorganization in a Chapter 13 bankruptcy will be directed by a court-appointed bankruptcy trustee. Secured loans — such as a mortgage or car loan attached to property that can be repossessed — get top priority. Unsecured debt — such as credit card balances — is lower on the list. Interest rates may be eliminated or reduced. Your monthly payments will be designed to be manageable, based on your income. The cost of your bankruptcy, including attorney's fees and court costs, will be paid gradually, as part of your monthly payment to the bankruptcy trustee.

The overall cost of a Chapter 13 bankruptcy may be more than that of a Chapter 7, but you will pay gradually, along with your loan repayments.

At the end of the three- to five-year repayment plan, your secured loans will ideally be back on track and any remaining unsecured debt may be completely discharged.

Your Next Best Step To Understanding More About Chapter 7 Vs. Chapter 13 Bankruptcy Talk To A Lawyer

The brief descriptions above are general and do not address unique circumstances. Specific issues in your case may include a mortgage, a car loan, personal loans or business loans. Get personalized information that will let you make good, right decisions about your own pathway to debt relief. Schedule a consultation with a Harrison, Arkansas, attorney by calling 870-743-7009 or 888-253-0269 (toll free) or sending an email message through this website.